Friday, 23 March 2012

CUE CARD ECONOMICS: Economic Harmonies, and The Miracle of Breakfast

FRENCH EXISTENTIALIST PHILOSOPHER Jean Paul Sartre famously stated “Hell is other people,” and he wrote many books to prove it. 

Unfortunately, all he proved to most readers was that Hell is reading Jean Paul Sartre books.

A century earlier his countryman Frederic Bastiat discovered, argued and helped to prove something very different; that other people are the very opposite of hell. Said Bastiat in his own magnum opus Economic Harmonies:

“All men’s impulses, when motivated by legitimate self-interest, fall into a harmonious social pattern.”

This is the big lesson that economics can give to philosophers: that the world is not made up of the “fundamental antagonisms” between people that some philosophers find everywhere,

    Between the property owner and the worker.
    Between capital and labour.
    Between the common people and the bourgeoisie.
    Between agriculture and industry.
    Between the farmer and the city-dweller.
    Between the native-born and the foreigner.
    Between the producer and the consumer.
    Between civilization and the social order.

And, to sum it all up in a single phrase:

    Between personal liberty and a harmonious social order.

What economics can teach philosophers (and what Bastiat can still teach economists) is that other human beings need neither be a burden nor a threat, neither a hell nor a horror but a blessing.

This is the greatest lesson economics can teach: that in a society making peaceful cooperation possible we each gain from the existence of others.

What a great story to tell!

TO START TO TELL THIS long story, a story that all of economics really serves to show, let’s begin with a short story—an excerpt, from a short story by a great short story writer: O. Henry. As his characters sit down in their wilds to break their fast with something “composed of fried bacon and a yellowish edifice that proved up something between pound cake and flexible sandstone,” they begin to reflect on The Perfect Breakfast:


Such a breakfast, they sigh, might only be possible in New York. "It's a great town for epicures.” As is virtually every city.  We take for granted now that in virtually every cafe in every city in the country we can sit down to the perfect breakfast. We reach over to Brazil or Kenya for our coffee and down to Christchurch for our mushrooms and rolls; to Pokeno, or Vermont, for our bacon and head further down to the Waikato to dig a slice of butter out of a Te Rapa urn and then turn over a beehive near a manuka patch in Nelson for our honey.

This is the Miracle of Breakfast: that we can eat like the gods for the cost only of a few dollars thanks to the freedom to trade, the division of labour and the 'invisible hand' of the market. And we take this for granted.  We take it so much for granted rather than celebrate sharing the meal gods eat on Olympia, we complain if our eggs are too cold.

And we don’t need long arms to enjoy it: we need the arms and minds of other people who are free to produce, free to trade, free to enjoy the fruits of their own labour by trading those fruits with others.

This is the lesson integrated by all of economics:  when you remove force and fraud people are a blessing rather than a curse. Thanks be to the freedom to trade, the division of labour and the 'invisible hand' of the market that makes it possible.

This is the great lesson of Economic Harmonies hinted at by Adam Smith, made explicit by our friend Frederic Bastiat, and developed in specific areas by the likes of Friedrich Hayek and Ludwig Von Mises. Bastiat first noticed it in a visit to Paris. Paris gets fed, he observed, yet no-one celebrates the miracle:


A light we term self-interest. It is this, says Bastiat, that is at the root of all the Harmonies.

Think about it. On our own we can produce barely anything in a single day.  If we were to permanently endure self-sufficiency or life in the wilds not only would the meal of ambrosia perpetually elude us, our lives would be one long round of much labour for very little reward.  We need others to keep us supplied as we now take for granted—with food, with drink, with iPods, iPads and the very roofs over our head—but how to enlist those others in our aid? Simple: we rely on trade. On voluntary cooperation. In short, we offer them their own profit in return for ours. We appeal to their own self-interest, a point made by Adam Smith in the part of his famous book where he invokes his most famous metaphor:


And so we do. By pursuing our own self-interest, through our production, our trade, our enterprise, we ensure “Paris gets fed.”

But there is no central planner here. That is the second part of this miracle: the “resourceful and secret power that governs the amazing regularity of such complicated movements” is not the result of government planning but the opposite: it is a naturally developed “spontaneous order” regulated by this “inner light” of self-interest and the power of free exchange.  That power, that light,  “is so illuminating, so constant, and so penetrating, when it is left free of every hindrance” it produces the order we take so much for granted.


This, Bastiat’s great lesson of spontaneous order, was taken up by Friedrich Hayek, observing society relies on the spontaneous order arising out of our voluntary cooperation.


This great miracle can only happen when each of us is free to follow our own road, to make use of our unique knowledge and circumstances to pursue our self-interests,  so promoting that of the society more effectually than when we really intend to promote it.

imageSO WHAT EXPLAINS THIS Miracle of Breakfast then? Bastiat’s conclusion in three points:

  • Free exchange
  • Self-interest
  • Spontaneous order

Or in one idea:

“That the legitimate interests of mankind are essentially harmonious.”

This is the great lesson integrated by economics, if we are willing to hear it:

Mind you, it takes all of economics to prove the point. And most philosophers are unable to read, or integrate, that much. 

But so too are so many of today’s economists.

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Wednesday, 21 March 2012

A shambles

Is there any truth to the rumour that jurors failed to convict Tame Iti and his co-defendants on the charge of involvement in an "organised" criminal group because what they saw of their group looked far from organised?

In any case, after the farcical arrests and trial it's now clear that the hastily drawn up Suppression of Terrorism Act under which the Urewera 20 16 15 14 4 were seized and charged is as great a shambles as Iti's rabble, and perhaps an even greater threat to our individual security.

It must go.


Just as he was about to do some good!


The first time in my life I find it in myself to offer good words about Nick Smith, and within 24 hours he's resigned.

I almost feel responsible.

That said however, on the issue on which he resigned he behaved badly: using political pull to help a friend (endorsing her ACC claim on ministerial letterhead) then lying about it afterward (saying he "couldn't recall" if he used the letterhead or not. Yeah right.)

So the minister with a tongue so forked he could hug a tree with it has gone, but ironically just before he was about to do some good.

I trust (but doubt) his successor will proceed to tie up councils, as Smith planned to do. And I hope (without any sense of optimism) that his succcessor will do what Smith never would and proceed further: to gut the RMA.

Both are urgent.

Given my new-found ability to place a curse on cabinet ministers though, perhaps if Smith's replacement proves too recalcitrant I should just offer some words of praise. As unlikely as that might sound.

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ECONOMICS FOR REAL PEOPLE: "The very soul of economics..."

Here's the note from our friends at Auckland's Economics Group on tomorrow night's meeting.

Tomorrow, Thursday 22nd, 6pm, Room 223 of the Uni Business School, we begin our first session of four on Economic Harmonies. And in the first of these we discuss the idea at the heart and soul of economics that is so often misunderstood:

 Economic Harmonies 1: Division of Labour - The very soul of economics!

* Why was Henry Ford able to produce more cars in a day than any other manufacturer?


* Why is economics founded on 'division of labour'?


* What barriers are there to division of labour? And what implications of these barriers?


These questions and more answered tomorrow night at the Auckland Uni Economics Group.

WHERE:Room 223, Auckland Business School, Auckland Uni
WHEN: 6pm, Thursday evening

All welcome!

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Tuesday, 20 March 2012

We come to praise Nick Smith. For now. [updated]

imageI never thought I’d write to praise Nick Smith rather than bury him. Neither did Liberty Scott.

But here you go.

It’s a first.

Because Nick Smith intends to muzzle councils.

Not just chronically over-spending councils haemorrhaging debt; not just over-stretched councils over-excited about meddling in other peoples’ business; not just councils flush with over-aggrandisement on truckloads of other people’s money; but all councils in the country who, he says, he intends to confine to doing only what councils should be doing.

Now if you were to list the differences between what Nick and I think councils should be doing you would have a very long list indeed.

So I hang my enthusiasm for his pronouncement not on words like “castrate,” “emasculate” and “tie up”–i.e., the sort of words I would be using as minister to describe my intentions for councils’ powers—but on the more temperate words being used like “confine,” restrict” and “roll back” (still far more energetic than anything else said by this government in its four year reign) and his stated intention to end the failed decade-long experiment of granting councils the legal “power of general competence.”

The reforms, dubbed “Better Local Government” effectively remove what has been widely known as the “power of general competence” granted to local councils in [Sandra Lee’s] 2002 reform of the Local Government Act, which made them responsible for “social, economic, environmental and cultural well-being.”
    Instead, councils will be given legal responsibility to provide “good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business.”

This ill-named “power of general competence” (clearly an oxymoron when it comes to councils in any case) was always going to end badly because, as many of us said at the time, it overturned the centuries-long principle of  that citizens may do anything they like except what is explicitly prohibited by law, whereas agents of government may do only what is explicitly allowed by law.  This is what it means to have the rule of laws, not men—a principle overturned by Sandra Lee’s 2002 reforms with the resulting encroachment by cockroaches on things they should never have contemplated.

So bravo then to Nick Smith (words I never thought I’d write) for doing what urgently needed to be done, and should have been done years ago. (One still wonders why, rather than reining in every bureaucracy in the country by doing what Nick promises to do, as local government minister Rodney Hide instead committed all his energy and every part of his party’s dwindling political capital into super-sizing Auckland’s bureaucracy.  There’s a story there still to be told.)

But it’s not all good news.  The minister still talks about “super” mayors and “super” bureaucracies, twin illusions you would think the reality of Len Brown and his dysfunctional merry-makers should surely have punctured by now.

And he maintains his enthusiasm for the disaster that is the Resource Management Act, which has single-handedly reduced property rights while raising housing prices.

So something to celebrate. But it’s still early days.

PS: Feel free to let us know what Nick Smith is trying to demonstrate in the picture above. Answers on a postcard please.

UPDATE:  Yes, this is still the same old Nick Smith, of course.  A person with a fully-equipped battery of political antennae who as minister of ACC was happy to write a “reference” for a friend who just happened to be involved in a messy ACC claim—fully aware of the effect of such a letter from such a minister on those considering the claim, even though he now suggests otherwise.

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Monday, 19 March 2012

DOWN TO THE DOCTOR'S: Ron Paul just doesn't get it

_McGrath001Doc McGrath has been reconsidering Ron Paul…

For a long time past, opinion among supporters of free-market capitalism has been divided  over the suitability for office of Republican presidential candidate Ron Paul. I have been a long-time supporter of Dr Paul, if only because of the uncommon sense he speaks on matters related to economics and central banking.

The septuagenarian obstetrician-gynaecologist-cum-congressman has long been an advocate of the gold standard, and of disestablishing the Federal Reserve. He opposes government intrusion into the lives of private citizens by his opposition to the knee-jerk laws that make passing through an airport in the U.S. a harrowing and degrading experience for most travellers.

All good so far.

_RonPaulBut I am now convinced his foreign policy would be detrimental to the interests of the U.S. in the long term. For a long time, I used to believe a policy of strict “isolationism”—pulling U.S. troops out of the hundred-and-thirty-something countries where they are stationed in their tens of thousands at present—would be a good idea, especially seeing as how the U.S. is basically bankrupt (and will probably be owned by China a few years from now).

I thought pulling troops back to the continental U.S. would save billions if not trillions of dollars, and might pacify those who resent the presence of United States troops on their soil.  But, as many in the libertarian and Objectivist movements have long been suggesting, such a policy would not lead to peace and prosperity for U.S. citizens. Instead, it would be a gutless capitulation to the enemies of freedom and in invitation to them to treat the sleeping giant as a a docile dinosaur willing to accept any indignity. It would not douse the flames of resentment in many of those countries, it would fan them. Such a policy would show their enemies (and on numerous occasions since at least the Suez capitulation has shown them) that the U.S. is a soft touch who will tolerate substantial strikes against its own citizens without any adequate retaliation.

Notwithstanding the fact that the current U.S. government and its chief executive have been to a greater or lesser degree traitors to the U.S. Constitution, like virtually all their predecessors for the last hundred years, the United States still best represents the idea of a secular nation built on the principles of individual rights and liberty. 

Despite the betrayal by U.S. politicians of the principles for which many of the Founding Fathers risked their lives, Ron Paul, sadly, does not represent a coherent force for good. He is a deeply flawed politician, with a blind spot in foreign policy the size of Texas.

I read  the transcript of a recent interview with ARI executive director Yaron Brook and listened to a short audio clip from 2011, and then knew without a doubt that I had been wrong in my unquestioning support for a man whose foreign policy position amounts to this:

The underlying problem with Ron Paul is his basic motivation: rather than pro-freedom he is primarily anti-government.

Instead of advocating government that protects individual rights, he has given libertarianism a bad name by advocating anarchism, the view that all government is bad; instead of advocating small government and the rule of law, he and his supporters argue for no state and no rule of law. In reality, there can be no freedom when there is no government: look, for example, at the chaos in Somalia, where the rule of law has broken down completely. That is no libertarian society; it is anarchic dog-eat-dog civil war without any protection of individual rights at all.

Yaron Brook says in the audio clip above that he could consider voting for a presidential candidate that wasn't an Objectivist, just as long as they were advocates for individual rights. Whether or not you consider Objectivism to be the best grounding philosophy for theories of individual rights and capitalism—and I happen to think it is—here we have an Objectivist saying that he could support a non-Objectivist as a candidate. I'm not sure Ayn Rand would have been that generous.  [Yes, she was; see below. – Ed.]

Free-market capitalism needs a new political torch-bearer.  Whether Ron Paul's high-ish profile has set back the cause of free-market capitalism decades, as Brook asserts, is debatable. He is occasionally inarticulate and does, unfortunately, come across as a crazy uncle type. It is surely telling that much of his current support appears to come from pacifists on the left wing of American politics who can relate to Ron Paul's short-sighted and frankly dangerous foreign policy.

While I agree with most if not all of what Ron Paul has to say on Austrian economics, I think American capitalism needs a new political voice and a fresh presidential candidate for 2016. Peter Schiff springs to mind. Andrew Breitbart would have been great. Penn Jillette would be a scream.

Dr Paul's star reached its zenith some time back and is now falling. He should step down once the primary/caucus season finishes, enjoy what years he has left with his family, and allow a more consistently individualistic figurehead to take up the cudgels against both the overt socialists in the Democratic Party, and the utterly revolting conservatives such as Romney and Santorum who give the party of Lincoln a bad name.

imageA wiser head than mine labelled as "Saddamites" those reluctant to endorse military action against Iran, Saudi Arabia and other nations whose governments nurture anti-American terrorists. How right he was. Ron Paul is a "Saddamite", and I guess I was too. But not any more.

The U.S. government should unleash the dogs of war onto the murderous regimes of Iran, Syria, the treacherous Saudis, and any other failing states giving succour to promoters of Islamic jihad. Turn the political rulers of those hostile states into pariahs, or even radioactive glass, if need be. But let's not wait for another Islam-inspired atrocity to occur before striking at the sponsors of that hideous death cult.

Now that plans to shut Iranian banks out of the world financial markets appear to be proceeding, it could be an opportune time to begin.

Ron Paul was right on one thing: the U.S. Government is not the world's policeman. But what Dr Paul failed to tell us is that it nevertheless has a duty to defend American citizens everywhere from people wanting to murder and maim them. To defend them with deadly and overwhelming force, with energy sufficient to transform wanna-be Islamist martyrs into gas molecules.

Just as it is time for Ron Paul to move on, it is time for the United States government to move on from a policy of appeasement toward vicious crazed murderers, to a policy of dishing out swift and palpable justice to those who threaten American interests with violence. While I have serious reservations over the funding of such a war, I don't think Obama really has a choice now.

Only this time, count me as a supporter of such a just war not as a Ronulan appeaser of Islam. I'm only sorry it took so long for the scales to drop from my eyes.

See you until next week,
Doc McGrath

* * * *

NB: In her 1964 article “How to Judge a Political Candidate” Rand said:

One cannot expect, nor is it necessary, to agree with a candidate's total philosophy -- only with his political philosophy (and only in terms of essentials). It is not a Philosopher-King that we are electing, but an executive for a specific, delimited job.... we have to judge him as we judge any work, theory or product of mixed premises: by his dominant trend....
If a candidate evades, equivocates and hides his stand under a junk-heap of random concretes, we must add up those concretes and judge him accordingly. If his stand is mixed, we must evaluate it by asking: Will he protect freedom or destroy the last of it? Will he accelerate, delay or stop the march toward statism?

It was on this basis that she first supported and then became disappointed in the candidacy of (who would have guessed it!) Barry Goldwater.